Macroeconomic Effects of Government Defense and Non-Defense R&D

Andrea Recine and Massimiliano Tancioni

No 262, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: We use narrative R&D appropriation shocks to investigate the transmission mechanism of government R&D. We document that a non-defense R&D shock boosts innovation, the stock market and labor productivity while prices decrease. We show that NASA's R&D contracting during the Space Race contributes to our results, with effects concentrated in transportation, electrical and computer equipment, and even more persistent in business services. In contrast, a defense R&D shock leads to mixed effects on innovation and labor productivity and, as a military news shock, generates a hump-shaped increase in defense equipment sector production. These results are robust in the post-Korea sample. Our findings on the macroeconomic transmission mechanism of non-defense R&D are consistent with theoretical models with endogenous productivity mechanisms and learning by doing.

Keywords: government R&D; non-defense R&D; NASA; Space Race; local projections; narrative identification (search for similar items in EconPapers)
JEL-codes: C32 E62 H25 O30 O38 (search for similar items in EconPapers)
Pages: 55
Date: 2025-05
New Economics Papers: this item is included in nep-tid
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